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As many of <strong>the</strong> cost reduction initiatives are centralised in common functions, as<br />
described earlier, <strong>the</strong> Group’s target in respect of operating expenses for <strong>the</strong> total<br />
of <strong>the</strong> Europe region (excluding Arcor) includes common functions but excludes<br />
<strong>the</strong> developing and delivering of new services and business restructuring costs.<br />
On this basis, <strong>the</strong>se costs grew by 3.5% in <strong>the</strong> 2007 financial year for <strong>the</strong> reasons<br />
outlined in <strong>the</strong> preceding paragraph.<br />
Associates<br />
SFR, <strong>the</strong> Group’s associated undertaking in France, achieved an increase of 3.5% in<br />
its customer base, higher voice usage and strong growth in data services. However,<br />
service revenue was stable at constant exchange rates as <strong>the</strong> impact of <strong>the</strong>se<br />
items was offset by a 5.7% decline in ARPU due to <strong>the</strong> increase in competition and<br />
significant termination rate cuts imposed by <strong>the</strong> regulator. The voice termination<br />
rate was cut by 24% to 9.5 eurocents per minute with effect from 1 January 2006<br />
and by a fur<strong>the</strong>r 21% to 7.5 eurocents per minute with effect from 1 January 2007.<br />
France is <strong>the</strong> first European Union country to impose regulation on SMS<br />
termination rates, which were cut by 19% with effect from 1 January 2006 and<br />
a fur<strong>the</strong>r 30% with effect from mid September 2006 to 3 eurocents per SMS.<br />
Cost reduction initiatives<br />
The Group has set targets in respect of operating expenses and capitalised fixed<br />
asset additions. The operating expense and capitalised fixed asset additions<br />
targets relate to <strong>the</strong> Europe region (excluding Arcor) and common functions in<br />
aggregate. During <strong>the</strong> 2007 financial year, <strong>the</strong> implementation of a range of Group<br />
wide initiatives and cost saving programmes commenced, designed to deliver<br />
savings in <strong>the</strong> 2008 financial year and beyond. The key initiatives were as follows:<br />
•<br />
The application development and maintenance initiative focused on driving<br />
cost and productivity efficiencies through outsourcing <strong>the</strong> application<br />
development and maintenance for key IT systems. In October 2006, <strong>the</strong> Group<br />
announced that EDS and IBM had been selected to provide application<br />
development and maintenance services to separate groupings of operating<br />
companies within <strong>the</strong> Group. The initiative was in <strong>the</strong> execution phase in <strong>the</strong><br />
2007 financial year and was progressing ahead of plan, with a number of<br />
operating companies having commenced service with <strong>the</strong>ir respective vendors.<br />
•<br />
•<br />
•<br />
•<br />
•<br />
The supply chain management initiative focused on centralising supply chain<br />
management activities and leveraging <strong>Vodafone</strong>’s scale in purchasing activities.<br />
Through <strong>the</strong> standardisation of designs and driving scale strategies in material<br />
categories, <strong>the</strong> Group aimed to increase <strong>the</strong> proportion of purchasing<br />
performed globally. The alignment of all objectives and targets across <strong>the</strong><br />
entire supply chain management was completed during <strong>the</strong> 2007 financial year.<br />
The IT operations initiative created a shared service organisation to support <strong>the</strong><br />
business with innovative and customer focused IT services. This organisation<br />
consolidated localised data centres into regionalised nor<strong>the</strong>rn and sou<strong>the</strong>rn<br />
European centres and consolidated hardware, software, maintenance and<br />
system integration suppliers to provide high quality IT infrastructure, services<br />
and solutions.<br />
The Group commenced a three year business transformation programme to<br />
implement a single integrated operating model, supported by a single enterprise<br />
resource planning (“ERP”) system covering human resources, finance and<br />
supply chain functions.<br />
The network team focused on network sharing deals in a number of operating<br />
companies, with <strong>the</strong> principal objectives of cost saving and faster network rollout.<br />
Many of <strong>the</strong> Group’s operating companies participated in external cost<br />
benchmarking studies and used <strong>the</strong> results to target local cost reductions.<br />
Initiatives implemented in <strong>the</strong> 2007 financial year included reductions to<br />
planned network rollout, outsourcing and off-shoring of customer services<br />
operations, property rationalisation, replacing leased lines with owned<br />
transmission, network site sharing and renegotiation of supplier contracts<br />
and service agreements.<br />
<strong>Vodafone</strong> Group Plc Annual Report 2008 47